20 August 2015
Section 161 of the Companies Act, 2013 states that a Nominee Director shall be appointed by the Board of Directors of the Company, if the AOA permits.
In light of the same, kindly confirm-
1. If such Director (not liable to retire by rotation) may be appointed by resolution passed by circulation by the Board of Directors of the Company;
2. Does the nomination & remuneration require recommending such appointment or not as such person is nominated by the financial institution?
03 August 2024
Under the Companies Act, 2013, the appointment and roles of directors, including nominee directors, are subject to specific provisions. Here’s how Section 161 and Section 178 of the Companies Act, 2013, apply to your queries:
### 1. **Appointment of a Nominee Director by Resolution Passed by Circulation**
**Section 161(3) of the Companies Act, 2013** allows the Board of Directors to appoint a nominee director if the Articles of Association (AoA) of the company permit such appointment. Here’s what you need to know:
- **Resolution Passed by Circulation:** Yes, a nominee director can be appointed by a resolution passed by circulation, provided that the AoA allows for it. The decision should be recorded in the minutes of the meeting and must comply with the procedures outlined in the company’s AoA.
**Relevant Provisions:** - **Section 161(3):** “A director appointed under this sub-section shall not be liable to retire by rotation.”
The appointment of a director, including a nominee director, by a resolution passed by circulation is permissible under the Companies Act if the AoA allows such a procedure.
### 2. **Role of the Nomination and Remuneration Committee (NRC)**
**Section 178 of the Companies Act, 2013** outlines the powers and responsibilities of the Nomination and Remuneration Committee (NRC). Here’s how it applies:
- **Recommendation of Appointment:** According to **Section 178(2)**, the NRC is responsible for recommending the appointment and remuneration of directors and senior management. However, the appointment of a nominee director nominated by a financial institution may not necessarily require the NRC’s recommendation if the nomination is done according to the terms of the financial arrangement.
**Relevant Provisions:** - **Section 178(2):** “The Nomination and Remuneration Committee shall, while formulating the criteria for determining qualifications, positive attributes and independence of a director, and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.”
The NRC is generally responsible for recommending appointments and setting policies related to remuneration. However, if a nominee director is appointed under a specific arrangement with a financial institution, and this arrangement is covered by the company’s AoA or other agreements, the NRC's role might be limited to ensuring compliance with overall policies.
### Summary:
1. **Appointment by Circulation:** A nominee director can be appointed by a resolution passed by circulation, provided the AoA permits such an appointment.
2. **NRC Recommendation:** The NRC may not be required to recommend the appointment of a nominee director if the appointment is made based on the nomination by a financial institution and is in accordance with the AoA or specific agreements. However, the NRC’s role in recommending the appointment and setting policies for remuneration should still be adhered to for other director appointments.
Ensure that the appointment of the nominee director complies with the company’s AoA and any agreements with financial institutions. For specific cases, consult with legal counsel or a company secretary to ensure full compliance with the Companies Act, 2013, and relevant regulations.
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